Almirante: Corporate officer’s liability

Dominador Almirante

RESPONDENTS Dolores G. Magbanua and 14 others were employed by Holy Face Cell Corp. as cooks, cashiers or dishwashers of its Tres Pares Fast Food. They alleged that they were employed by the corporation’s stockholders, including its president/manager Hayden Kho Sr. and the latter’s wife Irene S. Kho.

On Jan. 14, 2011, Kho’s daughter, Sheryl Kho, posted a notice in the company premises that the restaurant would close down on Jan. 19, 2011. Fearing the loss of their jobs, they tried to seek an audience with Kho about the closure, but to no avail. The restaurant closed as scheduled.

Thus, respondents filed a complaint for illegal dismissal asking for payment of separation pay, other labor standard benefits, damages and attorney’s fees.

The Court of Appeals (CA) reversed and set aside the ruling of the National Labor Relations Commission (NLRC) which dismissed the complaint against Kho. It held the corporation and Kho solidarily liable to the payment of respondents’ separation pay equivalent to one month for every year of service as well as nominal damages of P50,000 each and attorney’s fees.

Did the CA commit a reversible error?

Ruling: Yes.

In this case, the evidence on record do not support the findings of both the Labor Arbiter and the CA that Kho was the corporation’s president at the time of its closure, and that he assented to a patently unlawful act, thereby exposing him to solidarily liability with the corporation. A plain reading of the corporation’s GIS for the years 2007 and 2008 show that Kho was not the corporation’s president as he was merely its treasurer, while the GIS for the year 2009 indicates that he is no longer a corporate officer of the corporation. More importantly, aside from respondents’ bare allegations, there is a dearth of evidence on record that would indicate that Kho was a corporate officer at the time the restaurant, where respondents worked, closed down.

On this score, even assuming arguendo that Kho was a corporate officer, nowhere in the complaint nor in the respondents’ submissions before the labor tribunals did they allege that Kho committed bad faith, fraud, negligence, or any of the aforementioned exceptions to warrant his personal liability. The fact that it was Kho’s daughter who posted the closure notice and with whom respondents requested for an audience with Kho to tackle the issue of closure—which notice was not even presented in evidences—is no proof that he orchestrated the closure or assented to the same, let alone in bad faith.

Relatedly, bad faith cannot be ascribed on any of the corporation’s officers by the mere fact that the corporation failed to comply with the notice requirement before closing down the restaurant. Case law instructs that “neither does bad faith arise automatically just because a corporation fails to comply with the notice requirement of labor laws on company closure or dismissal of employees. The failure to give notice is not an unlawful act because the law does not define such failure as unlawful. Such failure to give notice is a violation of procedural due process but does not amount to an unlawful or criminal act. Such procedural defect is called illegal dismissal because it fails to comply with mandatory procedural requirements, but it is not illegal in the sense that it constitutes an unlawful or criminal act.”

Verily, absent any finding that Kho was a corporate officer of the corporation who willfully and knowingly assented to patently unlawful acts of the latter, or who is guilty of bad faith or gross negligence in directing its affairs, or is guilty of conflict of interest resulting in damages thereto, he cannot be held personally liable for the corporate liabilities arising from the instant case.

In sum, the CA erred in ascribing grave abuse of discretion on the part of the NLRC and in ruling that Kho should be held solidarily liable with the corporate liabilities of the Corporation. Hence, the NLRC ruling must be reinstated. (Hayden Kho Sr. vs. Dolores G. Magbanua, et al., G.R. 237246, July 29, 2019)